Threshold effect in the relationship between environmental taxes and CO2 emissions: A PSTR specification

Economics Bulletin, 2017, vol. 37, issue 3, 2086-2094

Abstract: This paper examines the relationship between environmental taxes and CO2 emissions for the OECD countries over the period 1994-2014, within the framework of the environmental Kuznets curve (EKC). By performing Panel Smooth Threshold Regression (PSTR) model, we found that the nexus between environmental taxes and CO2 emissions is non-linear. Besides, results show that there exists a statistically positive relationship between environmental taxes and CO2 emissions above the threshold level of 2.67\%, above which environmental taxes starts increasing CO2 emissions in OECD countries. Findings indicate also that there is a quadratic relationship between CO2 emissions and economic growth, confirming the existence of an Environmental Kuznets Curve (EKC) for OECD countries. This paper supports the view that a properly-implemented environmental taxes would result in the reduction of CO2 emissions in OECD countries.

Keywords: CO2 emissions; Environmental taxes; Renewable energy; Panel smooth transition regression (search for similar items in EconPapers)
JEL-codes: Q4 Q5 (search for similar items in EconPapers)
Date: 2017-09-27
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